The coronavirus pandemic has put healthcare in the spotlight. As individuals and governments fight the virus and its impact on the economy, the importance of healthcare has become apparent. This is true now, perhaps more than before, as it weighs in the potential of a protracted global economic recession.
Meanwhile, it has returned to wider markets, leaving many wondering: How will the market sectors perform in the latter part of the year?
As healthcare tends to hold up during recessions, companies in the industry can continue to perform strongly in the long run. Below, we'll take a closer look at the industry and two healthcare exchange-traded funds (ETFs) that can provide stability in the coming months:
Healthcare Trends
The average health expenditure of the Organization for Economic Co-operation and Development countries is currently 8.7% of gross national product, with the US at the top with more than 16%. According to government figures, health care spending in 2018 was $ 11,172 per person.
Several factors influence the sector. Demographics in countries change as countries age. A recent report from PWC summarizes the following:
"By 2030, the world's population is expected to increase by more than 1 billion, bringing the total to more than eight billion. 97% of this population growth will come from emerging or developing countries. Equally important is that people in all regions & # 39; s are living longer with fewer children. As a result, the fastest growing segment of the population will be the over-65s. "
In addition to patient demographics, technological developments also affect costs, employment trends, market entrants and consumer expectations. The new decade is likely to witness a rapidly evolving industry.
In July 2020, consulting firm Frost & Sullivan predicted that the pandemic will continue to affect different segments of the industry in different ways. In this way, both life sciences and telehealth will remain robust. Imaging and medical technologies, on the other hand, are negatively impacted by patients and healthcare professionals delaying many selection procedures.
The coming quarters are likely to show that strong companies will support revenue and earnings growth and thus provide value to shareholders. However, it is important to continue to monitor the industry and make informed investment decisions.
1. The SPDR Health Care Fund, Sector Selected
Current Price: $ 105.70
52 Week Range: $ 73.54 – 109.74
Dividend Yield: 1.47%
Expense Ratio: 0.13% per year, or $ 13 with an investment of $ 10,000
The Health Care Select Sector SPDR Fund (NYSE 🙂 provides exposure to a wide variety of companies in the pharmaceutical, biotechnology, healthcare equipment and services industries.
XLV, which includes 62 companies, tracks the index Health Care Select Sector . The top ten holdings make up more than half of XLV's assets under management, which is $ 24.5 billion. XLV's five largest companies are UnitedHealth Group (NYSE :), Merck (NYSE: MRK), Pfizer (NYSE :), Abbott Laboratories (NYSE :), and Thermo Fisher Scientific (NYSE :).
The sector allocation (by weighting) is Pharmaceuticals (29.11%), Healthcare Equipment and Supplies (27.81%), Healthcare Providers and Services (18.64%), Biotechnology (15.28%), Life Sciences Tools & Services (8.61%) and Healthcare Technology (0.56%).
So far in the year, the fund is up more than 3.5%. However, since the March lows, XLV is up more than 40%, so $ 1,000 invested in early spring would now be worth more than $ 1,400.
Given the recent volatility and profit-taking in broader markets, a decline towards $ 100 or even $ 95 is likely. Such a drop would provide a better entry point for long-term investors.
2. iShares U.S. Healthcare Providers ETF
Current price: $ 203.19
52 Week Range: $ 134.50 – 211.64
Dividend Yield: 0.74%
Expense Ratio: 0.42% per year, or $ 42 with an investment of $ 10,000
iShares U.S. Healthcare Providers ETF (NYSE 🙂 consists of health insurers, diagnostics and specialty treatment companies.
IHF, which includes 48 companies, tracks the index Jones U.S. Select Healthcare Providers . The top ten holdings make up more than 50% of IHF's total net assets, which amount to nearly $ 1 billion. The fund's five largest companies are UnitedHealth Group, CVS Health (NYSE :), Cigna (NYSE :), HCA Holdings (NYSE 🙂 and Humana (NYSE :).
The main breakdown by sector (by weight) is Managed Healthcare (40.07%), Healthcare Services (38.26%) and Healthcare Facilities (13.15%).
Year-to-date, the IHF is up more than 1%. Like XLV, it has also had a significant run-up since March and has returned over 50% since then. Therefore, taking short-term gains is likely to put pressure on IHF, possibly pushing it towards the USD 190 level. Investors with a two to three year horizon may want to buy the dips.
